AVTX

Business Context and Reporting Period

Avalo Therapeutics, Inc. (AVTX) is a clinical-stage biotechnology company focused on developing IL-1β-based treatments for immune-mediated inflammatory diseases. The company's primary asset is abdakibart (AVTX-009), an anti-IL-1β monoclonal antibody currently in a Phase 2 clinical trial (LOTUS) for hidradenitis suppurativa (HS). The reporting period covers the fiscal year ended December 31, 2025.

As of December 31, 2025, the company had 33 full-time employees. The company is classified as a non-accelerated filer and a smaller reporting company.

Key Financial Metrics

Liquidity: The company reported $98.3 million in cash and short-term investments as of December 31, 2025. Management believes these funds are sufficient to finance operations into 2028.

Material Changes vs. Prior Period

• Net Loss Increase: Net loss increased by $43.2 million (123%) year-over-year, driven primarily by a $25.6 million increase in R&D expenses and a $5.7 million increase in G&A expenses.
• R&D Expenses: The increase in R&D was due to costs associated with the Phase 2 LOTUS trial, including site activations, patient trial costs, and Chemistry, Manufacturing, and Controls (CMC) activities.
• Other Income/Expense: The company recognized $5.2 million in other expense in 2025, compared to $33.5 million in other income in 2024. The 2024 income was largely driven by the accounting impact of warrant liabilities from a 2024 financing that were subsequently exercised.
• Acquired IPR&D: The 2024 period included a one-time $27.6 million charge for acquired in-process research and development (IPR&D) related to the AlmataBio Transaction, which did not repeat in 2025.

Guidance, Outlook, and Risks

Outlook: The company expects operating expenses to remain largely consistent with 2025 levels through the anticipated topline data readout of the Phase 2 LOTUS trial in the second quarter of 2026. Expenses beyond this date are difficult to predict and will depend on trial outcomes.

Key Risks and Contingencies:

• Patent Expiration: The U.S. composition-of-matter patent for abdakibart (AVTX-009) expired in February 2026. The company plans to rely on biologics regulatory exclusivity (12 years in the U.S.) for protection.
• Capital Needs: The company expects to require additional capital in the future to fund Phase 3 development and commercialization. Failure to secure funding could force delays or termination of programs.
• Derivative Liability: As of December 31, 2025, the company recorded an $18.0 million derivative liability related to future milestone and royalty payments for previously out-licensed assets (AVTX-007). This liability is subject to fair value adjustments based on unobservable inputs.
• Third-Party Dependence: The company relies entirely on third-party contract development and manufacturing organizations (CDMOs) for manufacturing and clinical trial execution.

Investor Verification Checklist

• Cash Runway: Verify the sufficiency of the $98.3 million cash balance to fund operations through 2028, considering potential cost overruns in the Phase 2 LOTUS trial.
• Patent Strategy: Confirm the robustness of the regulatory exclusivity strategy following the February 2026 expiration of the core composition-of-matter patent.
• Derivative Liability Volatility: Monitor the $18.0 million derivative liability, as changes in probability of success or sales forecasts for out-licensed assets could materially impact future earnings.
• Phase 2 Trial Timeline: Track the progress of the LOTUS trial enrollment and the timing of the Q2 2026 topline data readout, which is the primary catalyst for future valuation.
• Milestone Obligations: Review upcoming payment obligations, including the $15.0 million milestone due to former AlmataBio stockholders upon the first patient dosed in a Phase 3 trial.